The light side of investing and financial markets

These Big Names need Vitality

To market to market to buy a fat pig. As expected Janet Yellen announced no change to the US interest rate last night. Inflation over the next 12-months is expected to get to the target of 2%, which signals we are still on for three small rate raises this year.

During the Fed’s 105-year history, Yellen is the first woman to lead the organisation. She was at the Fed for 14-years, four of which was as the Chair, where under her watch the US unemployment rate dropped from 6.7% to the current 4.1%. Many factors are at play when unemployment drops; business friendly interest rates are a key cog. Running the economy ‘hot’, which prolonged a low-interest rate environment has not been everyone’s preferred path. It is the path Yellen and Bernanke chose, time will tell if it was the correct one.

Market Scorecard. US markets bounced back from three days of losses, with some very modest gains. The Dow was up 0.28%, the S&P 500 was up 0.05%, the Nasdaq was up 0.12%, and the All-share was down 0.07%. Capitec had another tough day out, dropping 13%, now trading at R800. It is now down 27% since the start of the year. Regardless if the allegations are true or not, the problem for shareholders is that the company was trading at comparative values of two or three times that of other South African banks. The more stretched your metrics, small hiccups can have a big impact on the share price. A problem for the company itself is that depositors are worried to use them now. Their amazing record of opening around 100 000 new accounts a month has probably come to an end, impacting future growth potential.

The only stock currently sitting at a 12-month high, is former JSE star, Mr Price. Since the start of November last year, the stock has surged 67%! South African’s are feeling positive about South Africa again. A market commentator pointed out that yesterday Amazon became the most valuable listed company in the world. In this case he is not talking about the market cap but enterprise value (EV). To calculate EV, you subtract cash on hand from the market cap and then add on the debt. The logic is that if you bought 100% of the company, cash sitting in the company’s bank account would be yours, effectively reducing what you paid for the company. In other words, the market is valuing Amazon’s actual business excluding cash more than Apple’s actual business excluding cash.

Linkfest, lap it up

One thing, from Paul

US equity markets have had a terrific year. In the last 12 months, the S&P500 is up 23%. That is not normal. You have to be fully invested to benefit from such moves. That’s one of the most important things that we do here at Vestact – keep our clients optimistic and in the market. Don’t get distracted by the naysayers and all the noise!

Of course, not every single stock has delivered equal performance. A few tanked, most advanced, and then some did exceptionally well. Take a look at this graphical representation from Finviz. The size of the block is correlated to market capitalisation, and the deeper the green the better the increase. Amazon stands out, with a 76.19% rise since February 2017. The biggest loser is General Electric, with a decline of 45.56% over the last calendar year.

Jeff Bezos, Warren Buffett and Jamie Dimon. What a powerhouse team! On Tuesday they came out saying that they were exploring a joint venture which would try and fix the US healthcare system. Warren Buffett, in particular, has been very vocal about how expensive healthcare is in the US and how that expense creates a lag on the economy. When these guys speak, people listen. Healthcare stocks as a collective have dropped two days in a row since the announcement.

Preventative healthcare is all the rage these days. It makes sense. It is far cheaper to prevent a disease than to cure it. I may be biased here as a proud South African and Discovery shareholder but these guys should seriously contact Vitality and implement the incentive-based, preventative health insurance model.

Berkshire Hathaway, Amazon and JP Morgan have a million employees combined, who can immediately be put onto the Vitality system. It get’s people exercising, eating correctly and constantly screened. That is how you bring down the cost of healthcare. They already have the data to prove it.

Someone please tell Adrian Gore that these guys need him!

Bright’s Banter

I’m a not here to discuss how amazing an investor Warren Buffett is. I think we all agree on that and his track record tells a story. All I wanted to do is share these amazing timelines by the Visual Capitalist on how he processes information; maybe we can learn a thing or two. Buffett is still one of the most studied individuals because people are genuinely interested in what sets him apart from all the other investors.

Home again, home again, jiggety-jog. Capitec is up this morning, along with the broader market. It is ‘Big Tech Thursday’ this evening, where amongst others, Amazon, Alphabet, Apple, Alibaba (To have a successful tech company does the name need to start with an ‘A’?) and Visa all report earnings. Stay tuned, we will give all the updates in the coming days.

About Vestact

Vestact was established by Paul Theron in late 2002.
We look after money for private clients, not institutions. We manage your investments in Rands in Johannesburg and in US Dollars in New York. We offer individualised investment accounts, which means that you get your own portfolio, not a slice of some fund.
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